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Introduction:
Well this topic is not new, but this three letter word ECB
contains livelihood till some extent of persons in corporate
world. Indian corporate is one of the largest and strongest
finance market in world is limited to a three letter world
ECB
(external commercial borrowing). External Commercial Borrowings (ECB
) which cover under its umbrella commercial bank loans, buyers’
credit, suppliers’ credit, securitized instruments such as
Floating Rate Notes and Fixed Rate Bonds etc., credit from
official export credit agencies and commercial borrowings from the
private sector window of Multilateral Financial Institutions such
as International Finance Corporation (Washington), ADB, AFIC, CDC,
etc.
ECB can be provided by eligible lenders which can be defined as
those persons who have share in the equity of company or firm to
which they have right to lend money.
Use Of ECB:
ECBs are being permitted by the Government as a source of finance
for Indian Corporate for expansion of existing capacity as well as
for fresh investment. The policy also seeks to give greater
priority for projects in the infrastructure and core sectors such
as Power, oil Exploration, Telecom, Railways, Roads & Bridges,
Ports, Industrial Parks and Urban Infrastructure etc. and the
export sector. Development Financial Institutions, through their
sub-lending against the ECB approvals are also expected to give
priority to the needs of medium and small scale units ECBs are to
be utilized for foreign exchange costs of capital goods and
services (on FOB and CIF basis). Proceeds should be utilized at
the earliest and corporate should comply with RBI's guidelines on
parking ECBs outside till actual imports.
Who can raise ECB till what limit
All infrastructure and Greenfield projects can raise up to 50% of
the total project cost while Telecom Projects up to 50% of the
project cost (including license fees) In the case of power
projects, greater flexibility will be allowed based on merits.
FERA Approval:
Applicant is required to obtain approval from RBI under the FERA,
1973 after receiving the approval from ECB DIVISION, Department of
Economic Affairs, and Ministry of Finance.
RBI is endorsed to approve all the ECBs under US $ 3 million
scheme (enhanced to US 5 Million) and all other ECB proposals are
processed in DEA. Government as step towards further
simplification and rationalization has decided to delegate the ECB
sanctioning power to RBI up to US $ 100 million under all the ECB
schemes except structured obligation
Recent Trend In ECB:
The cost of funds in the Indian Market has been relatively higher
than International Market and there is a growing tendency for
Indian Business Houses to raise funds from International Markets.
Such financing is arranged for reputed corporate houses on
prevalent rates of interest. The interest rates are fixed in terms
of Basic rate of LIBOR plus other charges.
The Registered Foreign Financial Institutions interested in
lending funds to Indian Business Houses can earn handsome interest
from Indian Markets. Demand for E.C.B is rising rapidly in this
market and the Govt. Rules have also been relaxed to certain
extent.
Now, Loans upto US$ 5 Millions can be approved by Reserve Bank of
India and higher amounts are approved by Ministry of Finance.
Conclusion:
External Commercial Borrowings (ECBs) occupy a very important
position as a source of funds for Corporate. Thus, it is to be
maintained within prudent limits for total external borrowings and
to provide flexibility to Corporate in external borrowings and
that is reflected in its guidelines.
However, the main purpose of ECB is to encourage borrowings which
provides basis for strongest economy.
Thus according to some Maven:
ECB is not only three letter world but lifeline of corporate
world
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Biblography:
1) India's External Commercial Borrowings by V L Rao
2) Www.Banknetindia.Com
3) Www.Rbi.Org.In
 The
author can be reached at :aditisambhar@legalserviceindia.com
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External
Commercial Borrowings: 